Exercise B1-1: Consolidated balance sheet, Post-acquisition, No AAP, p% = 100%, Cost method
On January 1, 2019, Portastatic acquired 100% of the voting common stock of S for $100,000. On the date of acquisition, (1) Superchunk’s net assets had appraised values that approximated their recorded book values and (2) Superchunk reported Common Stock of $80,000 and Retained Earnings of $20,000. Portastatic uses the cost method to account for the Investment in Superchunk.
Superchunk reported net income of $20,000 and paid dividends of $10,000 during 2019. The partially completed Consolidated Financial Statement Working Paper for the year ended December 31, 2019 appears on the next page.
Required:
1. Get your notes from Exercise A8-1 and compare the facts and requirements of this exercise to that exercise. Do you notice anything interesting?
2. Prepare the journal entries made on Portastatic’s books during 2019 concerning the Investment in Superchunk.
3. Complete the individual financial statements for Portastatic and Superchunk on the working paper (provided on the next page).
4. Given Portastatic and Superchunk’s individual financial statements completed in requirement 3, determine each of the consolidated balances without proposing eliminating journal entries! This step may be quite challenging, but it is an important exercise if you want to get to the heart of the intuition behind this material. (Double hint: this step is a lot easier if you refer to Exercise A8-1!!!)
5. Complete the working paper by preparing the applicable eliminating entries in journal entry form. Hopefully, these entries result in the consolidated balances that you estimated in requirement 3 of this problem.
Portastatic and its Subsidiary, Superchunk
Consolidated Financial Statements Working Paper
For the year ended December 31, 2019
Exercise B1-2:
Consolidated financial statements, 2-years post-acquisition, AAP, p% = 100%, Cost method
Pole Company acquired 100 percent of the capital stock of Sitter, Inc., on January 1, 20X1, in exchange for $80,000. Assume the transaction was taxable and goodwill, if recorded, was nondeductible for tax purposes. On this date, Sitter’s stockholders’ equity consisted of capital stock, $50,000, and retained earnings, $12,000. On the acquisition date, Sitter’s identifiable net assets had appraised FASB ASC 805 fair values equal to the recorded values on Sitter’s books, except for property and equipment which had a fair value of $30,000 and a depreciated net carrying value of $20,000. The equipment had a remaining useful life of four years. Pole Company uses the cost method of accounting for its investment in Sitter. Two years later (at December 31, 20X2), the trial balances of the companies were as follows. (Note that the dividend and income statement accounts for 20X2 have not yet been closed to Retained Earnings in the following trial balance. However, those accounts have been closed to Retained Earnings in the consolidation working paper presented on the next page.)
The accounts payable of Sitter, Inc., include $3,000 payable to Pole Company.
Required:
1. What are you waiting for? Get your notes from Exercise A8-2 and compare the facts and requirements of this exercise to that exercise. Do you notice anything interesting?
2. Prepare the journal entries made on Pole’s books during 20X2 concerning the Investment in Sitter.
3. Try to determine each of the “consolidated balances” without proposing eliminating journal entries! This step may be quite challenging, but it is an important exercise if you want to get to the heart of the intuition behind this material.
4. Complete the working paper by preparing the applicable eliminating entries in journal entry form. Hopefully, these entries result in the consolidated balances that you estimated in requirement 2 of this problem.